EUR USD (1.3170) Although US data had started surprising to the upside in the last quarter, it is the rise in US Treasury yields over the last few days that seems to be finally convincing the sceptics that the US ‘green shoots’ might be here to stay. For many, the idea of a durable US recovery when ten-year bond yields were below two percent seemed incongruent. The final piece of the ‘recovery puzzle’ has therefore been put in place. However, on the currency front, the implications for the dollar remain ambiguous: will traders cheer the US recovery by buying dollars, or embrace the risk-on by selling it? On the eurozone front too, the prices of the German Bunds are declining and the zone’s largest economy is also generating positive data surprises. Some EU officials are convinced that the crisis resolution in the region is on the right track. Market participants are likely to treat these reassurances with a pinch of salt, but assuming they are right and the eurozone situation remains free of the shocks from the periphery that are currently predicted by some high-profile commentators, the potential for economic catch-up in the euro-area could even outpace that of the dollar-area in the short-term. This might spell positive news for the euro (in the same time horizon). Despite the euro’s firmness on Friday, we would endorse a bullish outlook only above the 1.3290/95 level. Until then the risk of a slide to 1.2930 remains.
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Deutsche Bank